From the 10Q
On May 12, 2011 we entered into a non-binding letter of intent with a farm-out partner (the "Farmee") which provides that the Farmee may earn a 44% working interest in PEL 112 and PEL 444 (the “Farm-out LOI”). Upon the signing of the letter of intent, the Farmee paid us AUD$100,000 (USD$104,355). To earn its 44% interest, the Farmee will issue us 1,000,000 shares of its common stock and is required to fund exploration and development expenditures including:
·
up to AUD$3,650,000 (USD$3,933,190) for performance of work area clearance and the acquisition of 125 square kilometres of 3D seismic data on PEL 112;
·
up to AUD$4,500,000 (USD$4,849,138) covering the dry hole costs of a three (3) well drilling program on PEL 112;
·
up to AUD$3,650,000 (USD$3,933,190) for performance of work area clearance and the acquisition of 125 square kilometres of 3D seismic data on PEL 444; and
·
up to AUD$4,500,000 (USD$4,849,138) covering the dry hole costs of a three (3) well drilling program on PEL 444.
Under the terms of the Farm-out LOI, in the event any well drilled as part of the six (6) well program tests positively for commercially viable production of oil or gas, the Farmee will pay 50% of the total aggregate completion costs of such well(s). Other working interest holders, including us, will pay their portion of the residual 50% of completion costs on a pro-rata basis in accordance with the ratio their working interest percentage bears to the total working interest percentage held by all working interest holders excluding the Farmee.
In connection with the potential Farm-out LOI, we have also entered into a Working Interest Participation Agreement (the “Participation Agreement”) with our current working interest partners in PEL 112 and PEL 444. Under the Participation Agreement, we will convey an undivided 26.67% working interest, and our partners will convey an aggregate undivided 17.33% working interest (total 44% working interest conveyance) to the Farmee upon completion of their agreed earn-in obligations.
Both the Farm-out LOI and the Participation Agreement are subject to a number of conditions including approval of the TSX Venture Exchange, and the execution of definitive agreements by all parties.
In June 2008 the Australian government extended the lease term and associated work programs for PEL 444 and PEL 112 by five years. Under Australian Law, at the end of each five year term, one third of the area covered by a petroleum exploration license must be relinquished. During June 2008, we identified and relinquished one-third of the acreage covered by PEL 112 and PEL 444 to the Australian government.
